Electioneering and governing demand very different scripts. It might be hoped that the two contenders to be prime minister appreciate that and that, once over the threshold of No 10, the winner will tear up the ludicrous speeches of the hustings and get down to dealing with the litany of problems that have been piling up for the UK. That would not make for a popular PM and neither is it likely to happen because, much as it may be delayed as long as possible, there is a general election coming in less than 30 months’ time and neither candidate is likely to have been fighting with the aim of going down as one of the shortest-serving prime ministers in British history.
Should Conservative Party members do what they have been promising the pollsters and plump for Liz Truss, in part to punish Rishi Sunak for what some see as his disloyalty to a widely discredited prime minister, the difficulties facing the UK could escalate very quickly. The policies she has outlined, although devoid of detail, seem almost deliberately designed to further damage an economy that is on its knees, an NHS at breaking point and a population petrified about how it will survive the soaring cost of living. The promise of tax cuts has undoubted appeal for what now constitute core Tory Party members, but does nothing to help the households too poor to pay income tax: nearly 24% in the pre-pandemic tax year, 2018-19.
Few believe that borrowing to fund tax cuts make economic sense, particularly at a time of rising interest rates, but Truss has correctly gauged how to appeal to her limited audience. Should she become prime minister, she will want to win enough support to secure a Conservative victory at the next election and that could lead her away from the long-term solutions that deep-seated problems require and towards dangerous short-term grandstanding. She is probably already relishing the prospect of donning her flak jacket to go into battle over Northern Ireland. The bill reneging on parts of the international treaty that is the Northern Ireland bill will be high on the parliamentary agenda when Westminster returns to work with its new leader in place. Like her cabinet colleagues, Truss blithely ignores the fact that it was their government that signed up to the Northern Ireland Protocol she now deems unworkable. Like the man who negotiated it, Lord Frost, she manages to seem appalled that the EU should be abiding by the terms of a deal which the UK government had previously lauded. Indeed, on the eve of a hustings in Belfast earlier this month, she chose to commence legal proceedings against the EU for its failure to move faster on allowing the UK to participate in an equivalent of the Horizon scientific collaboration project.
Perhaps unsurprisingly, the EU is unimpressed by the UK’s decision to unilaterally change the terms that had been agreed on the protocol and not inclined to indulge the country over issues such as Horizon.
If the new PM continues to take a belligerent stand, then a trade war with the EU will become a genuine possibility. This could be hugely damaging to the economy, since the EU remains the UK’s biggest trade partner. Despite formally departing from the EU in January 2020, that year, according to the Office for National Statistics, 42% of all UK exports went across the Channel. The trade deals that Truss, as foreign secretary, has been negotiating, so far barely move the dial.
Irrespective of an aggrieved EU, UK trade will be taking a hit from the strike at the Port of Felixstowe, which normally handles almost half of the UK’s container trade. Both Sunak and Truss promise to implement legislation to prevent strikes crippling essential services, a Conservative manifesto promise on which Boris Johnson failed to deliver. The scale of industrial unrest, though, is massive, with transport workers already striking and nurses, junior doctors and barristers threatening to join them. Most people have seen their real wages shrinking since the financial crisis of 2008 and now, with inflation ripping towards a 50-year record, they not only want but need more money.
Economists David Blanchflower, a former member of the Bank of England’s monetary policy committee, and Stephen Machin, professor of economics at the LSE, calculate that real wages of the median worker have fallen by around 8-10% since 2008. With inflation now above 13% and Citigroup predicting it could reach 18.6%, it does not take Mr Micawber to conclude that the result is likely to be misery.
The frequent assurances from Johnson and his colleagues that they were set on creating a “high-wage economy” were flimsy ambitions built on quicksand. In fact, UK workers are on course to suffer a far greater blow to their living standards than those in any other country in the G7, thanks to the lethal combination of low wages and high inflation. And as a former chancellor of the exchequer and chief secretary to the Treasury, Sunak and Truss respectively know that addressing the causes of this requires long-term, strategic policymaking.
In the meantime, neither can escape the desperate need for short-term alleviating tactics. The biggest risk is that the latter come with bills that could negatively affect any strategic measures, even if the new PM were prepared to take action to rebalance the economy.
The government cannot be blamed for the soaring cost of energy, which mostly lies with Vladimir Putin, but the ONS has been tracking the prices of a basket of the 30 lowest-priced basic foods and found that, in the year to April 2022 – which is when energy prices had the first significant increase – the cost rose by 6%. Although Conservatives still contrive to see no evil in Brexit, it is likely that it has been a driver in that increase.
There is also no denying that it lies behind some of the labour shortages that are now making life harder for many UK businesses in areas such as hospitality and food production. That has forced up wages in some sectors, but a few percent added to the minimum wage does not amount to a full petrol tank.
The new PM may not favour “hand-outs”, as Truss has called them, but will have no choice but to bolster household incomes as the winter takes hold. Suspending VAT on energy bills will be nowhere near enough and targeted help will be essential. Universal Credit is one mechanism that could be used, and restoring the £20 a week uplift that was so cruelly withdrawn last year would be a start – but only a start.
How will such necessary largesse be funded? There is no magic money tree in the Downing Street garden. There probably isn’t even a pound coin lurking down the back of the sofa, let alone the billions that Truss has promised for tax cuts.
Airy talk of “departmental savings” is easily said but always difficult to deliver. Are the cuts to come from an overstretched Passport Office or from an education system crying out for resources and dangling the threat of university fee increases on a scale that would deter all but the richest of students? Given that war in Europe is no longer just part of history, the government will be pressed to spend more, not less, on defence.
The NHS soaks up cash but, until the pandemic struck, UK healthcare spending as a proportion of GDP had been below that of many comparable countries such as France and Germany. It is now chronically sick, with shortages of doctors and nurses and hospitals literally, in some cases, falling apart. Waiting times for ambulances are verging on the fatal in some areas.
The need to reform health and social care, both in the way it is delivered and the way it is funded, is overwhelming. When not in office, politicians recognise this but, as soon as they have an electorate to answer to, they lose their nerve.
There is little reason to believe that this is going to change in the next couple of years so, to avoid the worst potential health outcomes and the headlines they would generate, more money will have to be channelled into coping with the sick and elderly. A little of that will come from the health and social care levy added to National Insurance contributions since the start of the current tax year and due to become a separate tax from April next year, but it will not be enough.
Truss would have us believe that tax cuts and a growing economy will provide the required loot, but this is about as likely to be the case as her assertion to parliament in 2018 that barking dogs would deter drones from flying drugs into prisons.
Research by the Congressional Budget Office in the US found that tax cuts funded through borrowing, as hers would be, almost inevitably lead to increased deficits. The key to a growing economy is increased productivity and that requires investment and the time for that to take effect and the acknowledgement that the interim can be painful. Margaret Thatcher was prepared for the country to undergo that pain, for which many never forgave her. Truss may see herself as another Mrs T, but she is hardly in a position to claim like her that “the lady’s not for turning”.
Back in 1994, as a member of the Liberal Democrats, she gave a remarkable speech to the annual conference supporting abolition of the monarchy. One wag afterwards produced a spoof of the conference under the title “Carry on up the Conference”, giving various parts to members of the usual Carry On team. The role of Truss was assigned to the late Charles Hawtrey, someone more used to playing camp clergymen than principled politicians.
It is hard to resist the conclusion that, at a point of crisis, when the country is in dire need of a leader prepared to confront the big issues and take decisions for the long-term good, the Conservative Party members, a tiny fraction of the UK electorate, are having to choose between two people whose ambitions are to win power and hang on to it for as long as possible. If this verdict is unjust, then they should be preparing to confront the biggest issue blighting the country, that of the lack of fairness in how the place works.
Inequalities in health and in housing have grown wider in the last 20 years. Levelling up” was a Johnsonian feelgood soundbite and it gained traction in Red Wall seats where there was a belief that they had been short-changed for decades as the perceived metropolitan elite prospered.
In fact, there are pockets of poverty all over the country, including the capital, and many of those reduced to taking parcels from food banks are people who are in work. Which takes us back to the issue of real wages. The relationship between earnings at the top and bottom in companies has been allowed to mushroom and the shareholders who own those companies and the people who run them seem highly reluctant to address the problem.
If they won’t share the cake a little more equally, then the time has come for the government to take a hand in the redistribution. The quickest way to do that is through tax increases at higher income levels, not tax cuts. There may be a point at which the so-called Laffer curve comes into play and increased tax fails to result in increased revenue because people find ways of leaving the country, but there is surely some way to go before the UK hits such a point.
A brave PM could then consult the country about what it wants from the state and how much it is prepared to pay for it. That calls for the sort of adult conversation that is far removed from the unedifying debate that has amounted to the Conservative leadership battle so far.
Patience Wheatcroft is a former editor of the Wall Street Journal Europe and is an unaffiliated member of the Lords
